Trending Story- 2016

Gig Economy - A Trending Trend

When Jeb Bush summoned a car from Uber, using the ride-hailing app to take him to Thumbtack, a consumer-service technology company, more than a dozen reporters packed around as he exited the vehicle.

This was, after all, no ordinary Uber ride. The car that Mr. Bush hailed was a symbolic gambit on his part to highlight the on-demand economy or the "gig economy".  Also Hilary Clinton, came up with her support but in more of cautious manner. In a speech laying out her economic plan, she said:

“This on-demand, or so-called gig economy is creating exciting economies and unleashing innovation. But it is also raising hard questions about workplace protections and what a good job will look like in the future.”

You often hear that the traditional employee job is on its way out. It is a big topic of conversation across the pond, but the issue is also generating heat every now and then. Okay then, to understand what's going on, being financial pundits, let's define the phrase- Gig Economy  "The freelance economy, in which workers support themselves with a variety of part-time jobs that don't provide traditional benefits such as healthcare."

While discussing this, few questions are needed to be answered and conveyed to an economist who deals with day-today market analysis. The questions vis-à-vis gig economy are as follows with the explanation:

Are there any signs of the gig economy in the jobs self-employed people are doing?

- The picture is mixed. The three biggest growth sectors for self-employed workers since 2009 have been hairdressing, cleaning and management consultancy. Granted, these services could be traded in the gig economy, but they are also jobs with a history of growing self-employment that pre-date the gig economy. The next biggest riser is “renting and operating real estate”, which could reflect people offering their homes and driveways online. On the other hand, taxi operation is the biggest faller, perhaps quelling the suggestion that Uber is taking over.

Is gig working something people explore on the side of traditional employment rather than as a main income?

- Official data do not back this. Only a very small minority of workers, the data suggest, derive a second income from self-employment.

So there are relatively limited signs for the rise of the gig economy in official data. However, let’s not conclude the naysayers are right just yet, principally for two reasons:

The first reason is that the revolution may be in its infancy. For instance, some have suggested that the significant rise in the legal wage floor associated with the new "national living wage" might drive an increase in self-employment as the costs of hiring employees rise.

Second, it is possible that we are not asking the right questions. Government surveys have never been good at measuring developments in the labour market. The recent furores around the true extent of zero-hours contracts is a case in point. This is especially true given the potential confusion around one’s employment status in the gig economy. For example, people tend not to realise that renting out their house or their car on the side counts as work, and so they do not tell government statisticians about it. Early evidence from America has indicated this this might be the case. A recent survey in Britain (by software provider Intuit) probed specifically for gig activities and estimated that 6% of Brits are creating or earning income in the sharing economy—a somewhat higher proportion than the official data suggest. (Data is in context with American economy, Source: The Economist)

The gig economy cannot be the only explanation for the growth in self-employment—after all, back in 2008 no one used a smart phone app to hire a cleaner or a cab. Demography may be more important. In 2008-15 the labour-force participation rate of women aged 16-59 increased from 74% to 76%, a rise of about 600,000. With the female participation rate already high by international standards, those women entering the workforce from 2008 onwards were likely to be those who had found it particularly difficult to work as employees. Hence, the growth is evident from the stats. (The data here strictly corresponds to Britain and the reader is advised not to generalize it to the situation around globe, but one can understand the impact this would cause in coming future)

The Financial Doctors' Perspective :

Today, more and more of us choose, instead, to make our living working gigs rather than full time. Choice is usually a good thing in life, and the lowering of barriers provided by today’s technology might be viewed as democratizing entrepreneurial opportunity. But the fragmentation associated with gig economy working may bring with it new forms of insecurity. A recent article from 'WIRED' says "Gig Economy Workers Need Benefits and Job Protections" . Some changes will be  inevitable during this course or at the very least, it is likely to require new ways of looking at traditional policy tools around employment (and consumer) rights, income smoothing and pensions.  If we want to understand the balance between freedom and security and the space for policy change, a vital first step is to find ways of better capturing who the giggers are.